Magazine

Getting MGM off the Back Lot

March 02, 2003

On Alex Yemenidjian's first day as a Hollywood mogul in 1999, he didn't attend any swank parties. He didn't even have time to eat at Spago. Instead, the onetime tax accountant pulled an all-nighter. Haggling until 4 a.m., the new chairman of Metro-Goldwyn-Mayer Inc. (MGM) struck a deal with Universal Pictures that let him hire away Universal President Christopher J. McGurk as his second-in-command. The price? MGM kicked in $100 million to a joint venture to make films, including the 2001 blockbuster, Hannibal. Before long, however, the relationship between the two studios fell apart. Which didn't bother Yemenidjian one bit. "I got Chris McGurk and half of Hannibal," he says now. "I'd make that deal anytime."

Indeed, the 47-year-old dealmaker's performance may have at long last awakened Hollywood's sleeping lion. Until recently, MGM, which produced such classics as The Wizard of Oz and Gone With The Wind, was the industry's most troubled studio. Plagued by management turmoil and a string of box-office bombs, it lost a staggering $1.6 billion over six years in the 1990s. Finally, MGM's majority shareholder, the financier Kirk Kerkorian, had enough: He summoned his longtime lieutenant, who was then nicely situated in Las Vegas, as president of the MGM Grand Inc. casino, to Hollywood.

With Yemenidjian in charge, the company has reported 11 profitable quarters in its last 14; on Feb. 5 it announced earnings of $58.7 million. And while MGM still gets caught short--in early 2002 Rollerball flopped big time--Yemenidjian has worked to make it less vulnerable to large losses and less reliant on films generally. First, he has limited the studio's exposure to less than $25 million a movie; he is producing more low-budget work and signing on partners for the bigger projects. To capitalize on the booming DVD market, he bought back distribution rights for MGM's huge library of older films from Warner Brothers. He also acquired a 20% stake in Rainbow Media Group, which owns American Movie Classics and the Independent Film Channel, and invested in international channels serving 97 countries. And, by the way, he pushed producers to hire actress Halle Berry to play the Bond Girl in last fall's megahit, Die Another Day.

Those decisions have helped him clean up MGM's balance sheet; now, in fact, it has more than $600 million in cash. But Wall Street is still looking for Yemenidjian's big deal--for MGM to either buy its own cable or broadcast company or get bought by one. The problem is that the studio is, in effect, landlocked: a resource-rich company (its library of 4,000 films includes the James Bond, Rocky, and Pink Panther series) with no direct TV distribution, which can leave it at the mercy of satellite, cable, and broadcast companies. That's one reason the company's stock price has fallen 46%, to $9.50, in the past year. "They need to be part of a vertically integrated company," says CIBC World Markets analyst Michael Gallant.

Yemenidjian has no problem with that. "We want to be a larger, diversified company, and we're open to all possibilities," he says in MGM's sleek Santa Monica (Calif.) headquarters. They certainly are. In the past two years, Yemenidjian has talked to Dreamworks, NBC, and Sony Pictures of America about joining forces. Recently, he has been trying to get in on the great unraveling of Vivendi Universal. He has approached Vivendi's investment bankers about a potential merger with Universal's studio operation; Yemenidjian, who won't comment on the talks, is likely interested in its USA, Sci-Fi, and other cable channels.

In any negotiations, Yemenidjian is, of course, mindful of MGM's shareholders--and one in particular. Kerkorian, the 85-year-old billionaire who owns nearly 67% of MGM's stock, has profited from selling and buying back the studio twice since 1969. Yemenidjian says that since he's been at the studio, they have never approached anyone about selling MGM.

Yemenidjian has been Kerkorian's go-to guy since the two were first introduced by a mutual friend in 1988. After leaving his CPA practice to work for Kerkorian's holding company, Tracinda Corp., Yemenidjian led his boss's unsuccessful hostile bid to buy Chrysler Motors in 1995. Five years later, after helping overhaul the MGM Grand, he assisted Kerkorian in putting together a $6.4 billion merger with rival Mirage Resorts.

Yemenidjian and Kerkorian aren't just close associates; they're more like father and son. Both are of Armenian descent, they talk every day, and most weekends they play tennis at Kerkorian's sprawling estate in Coldwater Canyon, not far from Beverly Hills.

Even though they know his usual order at Spago (skinless chicken and vegetables), Yemenidjian isn't very Hollywood. Until recently, he lived in a high-rise condo. He's married to his high school sweetheart and usually watches the Oscars from home. Relatives and friends, once including his high school principal, attend MGM shareholder meetings, to provide support. His one indulgence is that he designs his own shirts: His signature look is oversize collars.

Not that Yemenidjian doesn't occasionally play the mogul. He reads scripts and suggests changes (he thought the original ending to MGM's remake of The Thomas Crown Affair was flat). "He gets this business, even if he started out as an accountant," says Crown and James Bond star Pierce Brosnan. Kind words from 007. But if the right offer comes along for MGM, no doubt Yemenidjian would be ready for some bold moves of his own. By Ronald Grover in Los Angeles